Investors stay wary before Prada's IPO show
By Antonella Ciancio and Elzio Barreto
MILAN/HONG KONG (Reuters) - Wealthy Asian buyers are used to jostling for seats at fashion house Prada's catwalk shows, but investors may baulk at the price of its upcoming $2 billion initial public share offering in Hong Kong.
The Milan-based maker of colorful leather bags and avant-garde Miu Miu dresses is due to set the price range in the coming hours for its decade-long listing plan, the first for an Italian company in Hong Kong. The roadshow starts on Monday.
Six fund managers said the offering, aimed at paying down debts of around 1 billion euros ($1.44 billion) and fund retail expansion in Asia, is likely to be expensive compared with valuations for its European rivals.
"With Prada, we may participate, but I'm personally a little cautious of the deal. I think it's too expensive. It's a large deal. You will be able to buy into the IPO cheaper when it's actually traded down the road," said Josef Schuster, founder of Chicago-based IPO investment firm IPOX Schuster LLC.
"My gut feeling is that Prada is going to have to bring down the price they expect to get at least 10-15 percent," he said.
The IPO will value the group run by Patrizio Bertelli and his trend-setting wife designer Miuccia Prada at between 8 billion euros ($11.54 billion) to 11 billion, according to three unpublished research reports for investors seen by Reuters.
Analysts say that even at the lower end of the valuation range, Prada's sale of 16.5 percent of the enlarged capital would come at around 22 times 2011 forecast earnings, higher than the average price-earnings multiples of European groups such as Tod's <TOD.MI>, Burberry <BRBY.L>, and LVMH <LVMH.PA>.
"If Prada comes at a premium to the luxury goods sector, investors will compare it with other well-managed luxury companies such as LVMH or Tod's that are being traded at a lower price," Scilla Huang Sun, portfolio manager of the Julius Baer Luxury Brands Fund said.
Prada's listing, which the group had first planned for 2001, also faces competition from the upcoming IPOs of Florentine luxury shoemaker Ferragamo and down-filled jackets maker Moncler, which aim to raise a total of up to 1 billion euros.
"People will compare them to see what they get in terms of price. We will look at all the IPOs very carefully," Huang Sun said.
A manager of a Switzerland-based luxury fund said, however, a premium for Prada would be "deserved," given even higher multiples for other Hong Kong-listed peers and the group's prospects of growth in Asia.
Shares in French skincare products retailer L'Occitane <0973.HK> and Hong Kong luxury menswear operator Trinity Ltd <0891.HK> trade at an average of around 26 times forecast 2011 earnings, according to a report by Goldman Sachs.
And Prada's fast-growing exposure to China, which is set to become the world's biggest luxury market within five years, could draw a stronger response from Asian investors than in the United States, two managers said.
"Prada is a very famous brand name in Hong Kong and lots of people know the name. Those branding stocks in the consumer sectors would be more popular right now than other sectors," said Alvin Cheung, associate director at Prudential Brokerage.
However, volatility in global markets including the United States could lead investors to shun risk in the short term.
"The overall market condition over the next few months is probably more cautious. In the long run, the markets will definitely be quite strong, the economic fundamentals especially in Asia are very good," Schuster said.
($1=.6931 euros)
(Writing by Antonella Ciancio; Editing by Greg Mahlich)